Michael_A._Hitt,_R._Duane_Ireland,_Robert_E._Hosk

C-12 Part 4: Case Studies

Table A­ 5 Shareholders’ Return Ratios

Ratio Formula What It Shows

1. Dividend yield on common
   stock

Annual dividend per share

Current market price per share

A measure of return to common stock-

holders in the form of dividends

2. Price-earnings ratio Current market price per share
   After-tax earnings per share

An indication of market perception of

the firm; usually, the faster-growing or

less risky firms tend to have higher PE

ratios than the slower-growing or more

risky firms

3. Dividend payout ratio Annual dividends per share
   After-tax earnings per share

An indication of dividends paid out as a

percentage of profits

4. Cash flow per share After-tax profits + Depreciation
   Number of common shares outstanding

A measure of total cash per share avail-

able for use by the firm

Table A­ 4 Activity Ratios

Ratio Formula What It Shows

1. Inventory turnover Sales
   Inventory of finished goods

The effectiveness of the firm in

employing inventory

2. Fixed-assets turnover Sales
   Fixed assets

The effectiveness of the firm in utilizing

plant and equipment

3. Total assets turnover Sales
   Total assets

The effectiveness of the firm in utilizing

total assets

4. Accounts receivable turnover Annual credit sales
   Accounts receivable

How many times the total receivables

have been collected during the

accounting period

5. Average collecting period Accounts receivable
   Average daily sales

The average length of time the firm

waits to collect payment after sales